Investor Lost $300,000 to an LPL Financial Advisor Who Recommended a Loan Strategy

According to the Finanical Regulatory Authority (FINRA) John Aloysius Dougherty entered the securities industry in December 1997. In January 2021, Dougherty became associated with LPL Financial LLC (LPL), a FINRA member firm, as a Financial Advisor. In a Uniform Termination Notice for Securities Industry
Registration (Form U5) dated August 11, 2023, LPL reported that it terminated
Dougherty because he “[e]ngaged in outside business activity without Firm approval, in
violation of Firm policy” and “[p]articipated in private investments without Firm
approval, in violation of Firm policy.”

“This means to me Doughtery was selling an unapproved investment, using a loan from LPL that Dougherty recommended to a customer, in violation of FINRA Rules, said Jeffrey Sonn, a nationally recognized securities attorney. “It is a fundamental rule in the securities industry that financial advisors may not sell investments unless they are first approved by the brokerage firm,” added Sonn. “In my opinion, it is fraud to induce any customer to take a loan against their securities portfolio for use in an unapproved outside business, real estate or securities investment,” Sonn said.

A securities based loan, or margin loan, is line of credit secured by assets in your investment portfolio, added Sonn. “If your advisor recommends you take out a loan secured by your investments, make sure that the money is only used for a firm-approved investment. If you have any doubts, call the branch manager, without your advisor, to confirm the proposed investment is, in fact, approved. It may not be,” added Sonn.

Brokerage firms push the use of lines of credit or securities based loans because it is new money the finanical advisor can invest and make more commissions, said Sonn. But the customer runs the risk that the investment fails and the customer still must pay back the loan, or the brokerage firm will force liquidate and sell out the securities portfolio account.

Brokerage firms have a duty to supervise their financial advisors to prevent the sale of investments in outside businesses, securities and real estate. But finanical advisor have often been found to falsify answers on forms, failing to disclose outside business interests, investments or recommendations to customers outside the brokerage firm. FINRA barred former LPL and Wells Fargo financial advisor John Dougherty for failing to cooperate with a FINRA investigation.

Meanwhile, the customer who lost $300,000 has sued LPL in a FINRA arbitration.

Have you invested in an investment that does not appear on your monthly statement? If so, you may be the victim of “selling away,” the sale of unapproved investments outside of the law firm, which is a fraud.

If you believe you are a victim of the misuse of a securities based loan or an investment not listed on your monthly brokerage statements, you may have a claim for damages. Contact Sonn Law Group PA at 305912000 for free information, or email us at [email protected].

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